Archive for November, 2009
The Mortgage Bankers Association's (MBA) survey of mortgage applications declined again last week.
Gross mortgage application volume was down 4.5% for the week ending November 20 in the MBA’s weekly composite index.
The MBA’s refinance index was down 9.5% from the previous week and the purchase index increased 9.6%.
Refinance mortgages took a decreased share of the market at 71.7% compared to 74.6% in the week prior. Adjustable-rate mortgages (ARMs) accounted for 5.3% of total application volume, up from 5.1% in the previous week.
The composite index’s four-week moving average increased 0.5%, while the four-week moving average decreased 6.4% in the purchase index and increased 4% in the refinance index.
The MBA’s weekly indices cover more than 50% of all US retail residential mortgage applications and surveys mortgage bankers, commercial banks and thrifts. Next week’s index will likely be adjusted for the shortened holiday week.
Write to Austin Kilgore.
Average interest rates for 30-year fixed rate mortgages (FRMs) are at all-time lows in two weekly surveys.
Freddie Mac’s (FRE: 0.00 N/A) weekly survey put the 30-year FRM at 4.78% with a 0.7 point, down from last week when it was 4.83% and one year ago when it was 5.97%. This week’s rate ties the record for lowest ever in the weekly survey’s history, which was previously reached twice in April this year.
Bankrate.com’s survey put the 30-year FRM at 5%, a new low for the company’s survey of large US banks and thrifts, and is down 6bps from last week, which was the previous all-time low.
Freddie put the 15-year FRM at 4.29% with an average 0.6 point, a new low for the survey. Last week’s 4.32% was the previous all-time low. Bankrate.com put the 15-year FRM at 4.47%.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.18% with an average 0.6 point in Freddie’s survey, down from last week’s 4.25%. Bankrate.com put the five-year ARM at 4.54%, down 4bps from last week. Both rates are record lows for in the respective surveys.
The one-year Treasury-indexed ARM averaged 4.35% this week with an average 0.7 point, unchanged from last week, Freddie Mac said.
“Interest rates for 30-year fixed-rate loans are currently 0.8 percentage points below this year's peak set in mid-June, which shaves roughly $100 off the monthly payments on a $200,000 mortgage,” said Frank Nothaft, Freddie Mac vice president and chief economist.
Write to Austin Kilgore.
As the US Congress continues to work through proposed financial regulatory reforms with the consumer in mind, Her Majesty's (HM) Treasury proposed new regulations it said will strengthen consumer protections for UK borrowers whose mortgages are sold to third parties.
According to a consultation document the Treasury published (available to download here), borrowers would be afforded protection by the Financial Services Authority (FSA) — the non-governmental body responsible for regulating most financial services markets, exchanges and firms in the UK.
The proposal would extend the scope of FSA regulation to include second-lien and buy-to-let mortgages and protect borrowers when lenders sell on mortgage books to third parties. It would also provide borrowers who experience problems with a means of redress through access to the Financial Ombudsman Service (FOS), the Treasury said.
In 2004, the UK Treasury granted the FSA the authority to regulate first-lien mortgages, including ensuring lenders treat customers fairly and use foreclosure as a last resort. The proposal would again expand the scope of the FSA’s powers, to include regulation of second-lien and buy-to-rent mortgages, power currently held by the UK Office of Fair Trading (OFT).
The proposal would also afford borrowers FSA protection when their mortgage is sold to a third party, including regulations requiring fair treatment of customers. This opens the door for investor entities not currently regulated by the FSA to be subject to the organization’s regulation.
“Since the onset of the global financial crisis, the Government has worked hard to ensure mortgage borrowers are treated fairly by their banks. Our focus has been to do all we can to make sure people can stay in their homes and to limit repossessions as much as possible,” said exchequer secretary, Sarah McCarthy-Fry.
“But we are aware that this crisis has raised issues around the world about the regulation of the mortgage market. We are determined to reform the system for the future, to offer both stronger protection for consumers and greater stability in the housing market,” she added.
The UK government will accept comments from the public until February 15, 2010 on the proposals before issuing a final ruling.
Write to Austin Kilgore.
A day after mortgage giant Freddie Mac (FRE: 0.00 N/A) said its purchases and issuances were down in October, sister government-sponsored enterprise (GSE) Fannie Mae (FNM: 0.00 N/A) revealed its book of business declined at an annualized rate of 3.1% in the same month.
Fannie's mortgage-backed securities (MBS) and other guarantees totaled $2.82bn at the end of the month. The GSE issued $40.74m of MBS in October — down 31% from $59.25m in September — bringing total issuance in 2009 up to $712.1m.
Fannie's gross mortgage portfolio declined at an annualized rate of 27.8% and stood at $771.4m at the end of the month, according to the monthly summary (available to download here).
The performance of Fannie's mortgages continued to decline in the previous month. The single-family serious delinquency rate rose 27 bps to 4.72% in September — the most recent month of data. The multi-family serious delinquency rate rose 6 bps to 0.62%.
These rates are up from 1.72% and 0.16% respectively in September 2008, according to Fannie's data.
Write to Diana Golobay.
The National Association of Realtors (NAR) awarded grants to 16 local and state Realtor associations to promote and expand local affordable housing projects.
NAR donated a total of $50,950 through its Housing Opportunity Fund grants program. The Housing Opportunity Fund was created in 2006 to increase local affordable housing opportunities. Grants of up to $5,000 are awarded twice per year. These grants are the latest in the more than 100 grants worth nearly $400,000 NAR’s awarded in the program’s history.
“Despite the recent drop in home prices there is still a lack of decent, affordable housing in many of our cities and towns,” said NAR president Vicki Cox Golder. “Realtors build communities and understand how a shortage of affordable housing can affect the local area. NAR’s Housing Opportunity Fund grants help us raise awareness about the issue and make a real difference in communities across the country.”
The grants can be used to fund housing symposia, home buyer education or housing fairs, counseling and financial literacy efforts, down payment or closing cost financial assistance programs, public opinion surveys and Realtor affordable housing education.
Write to Austin Kilgore.
Ohio Attorney General Richard Cordray filed a lawsuit against the nation’s three largest credit rating agencies — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — claiming the agencies unsettled US financial markets by providing unjustified and inflated ratings of mortgage-backed securities (MBS) in exchange for lucrative fees from securities issuers.
The suit was filed on behalf of five Ohio public employee retirement and pension funds, alleging the agencies improperly issued triple-A ratings to risky investments. Cordray’s office said the improper ratings cost the Ohio Funds losses in excess of $457m.
“The rating agencies assured our employee pension funds that many of these mortgage-backed securities had the highest credit ratings and the lowest risk. But they sold their professional objectivity and integrity to the highest bidder,” Cordray said in a statement. “The rating agencies’ total disregard for the life’s work of ordinary Ohioans caused the collapse of our housing and credit markets and is at the heart of what’s wrong with Wall Street today.”
The suit alleges the agencies “made spectacularly misleading evaluations of mortgage-backed securities due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating,” Cordray’s office said.
“Contrary to the representations of the rating agencies, these mortgage-backed securities were, in fact, high-risk investments that lost tremendous value as the housing market collapsed and mortgage foreclosures accelerated,” Cordray said.
This is the eighth lawsuit Cordray’s office filed against financial and investment firms connected to the economic downturn. So far, those suits have resulted in $2bn in recovered damages.
In a prepared statement, Moody’s said: “The suit against Moody’s is without merit. Moody’s ratings were and continue to be based on clearly defined and publicly disclosed methodologies. It is unfortunate that the state attorney general, rather than engaging in an objective review and constructive dialogue regarding credit ratings, instead appears to be seeking new scapegoats for investment losses incurred during an unprecedented global market disruption.”
Also in a prepared statement, S&P said: “We believe the claim has no legal or factual merit and we intend to vigorously defend ourselves against it,” adding, “a recent SEC [Securities and Exchange Commission] examination of our business practices found no evidence that decisions about ratings methodologies or ratings models were based on attracting or losing market share.”
Representatives from Fitch Ratings did not respond to request for comment when this story was published.
Write to Austin Kilgore.
Banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) posted aggregate net income of $2.8bn in Q309 despite net quarterly losses reported by more than 26% of all insured institutions, according to the FDIC's quarterly report on insured institutions.
Provisions for loan losses totaled $62.5bn in the quarter, an $11.3bn or 22.2% increase over the year-ago quarter. Realized losses on securities and other assets were $4.1bn — $3.8bn lower than last year.
"Today's report shows that, while bank and thrift earnings have improved, the effects of the recession continue to be reflected in their financial performance," said FDIC chairman Sheila Bair.
Forty-seven institutions were absorbed through mergers while 50 banks failed in the quarter — the largest number of failures in a single quarter since Q492 when 55 firms failed. The FDIC's Deposit Insurance Fund (DIF) balance fell below zero for the first time since Q392. As of September, the DIF was at negative $8.2bn.
The FDIC's "problem" bank list swelled nearly 33% to 552 from 416 banks in the previous quarter. The total assets of these "problem" firms grew little more than 15% to $345.9bn from $299.8bn during the same time.
Both the number of banks and the volume of assets on the FDIC's "problem" list are at their highest level since the end of 1993.
Write to Diana Golobay.
It will be at least five years before the economy experiences a sustainable rate of growth and levels of unemployment and inflation acceptable to the Federal Reserve, the Federal Open Market Committee said in its Nov. 4 meeting.
Meeting participants, including members of the Fed Board of Governors and the presidents of the Federal Reserve banks, believe economic recovery will be gradual, with real gross domestic product (GDP) growing at a moderate pace and the unemployment rate declining slowly over the next few years. During this time, inflation will remain subdued, the committee said.
The committee increased its projections for real GDP growth for this year, after the second half of the year outperformed its original June projections.
The committee also agreed to maintain the current 0 to 0.25% federal funds rate, noting economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. The committee affirmed its intent for the Federal Reserve to purchase a total of $1.25trn of agency mortgage-backed securities and about $175bn of agency debt.
Write to Austin Kilgore.
Accountancy rule changes under the Financial Accounting Standards Board (FASB) could lead to reduced securitization issuance volume in certain asset classes, according to independent rating agency DBRS.
Securitization market commentary by DBRS this week studies the impact of an interim rule by the Federal Deposit Insurance Corp. (FDIC) on asset-backed securities (ABS) issued by FDIC-insured banks.
The FDIC's interim rule responds to industry concerns that under Financial Accounting Standard (FAS) 166 and 167, transfers of assets from insured depository firms to securitization vehicles would not be deemed sales under generally accepted accounting principles (GAAP) and would be subject to seizure by the FDIC in the event of a bank failure.
The rule provides a temporary "safe harbor" for assets being transferred for securitization.
The rule extends the FDIC's "securitization rule" to transactions that would not qualify as sales under post-FAS 166 GAAP, as long as they qualify under pre-FAS 166 GAAP. The rule grandfathers securitizations for which assets were transferred prior to March 31, 2010, as long as these participations complied with GAAP before Nov. 15, 2009.
"This new clarity should afford the support necessary for reliance by opining law firms providing the legal opinions on bank sponsored transactions closed on or before March 31, 2009 of a certainty consistent with highly rated asset-backed transactions, potentially possessing credit ratings higher than that of the sponsoring institution," DBRS said in commentary Monday.
DBRS said it expects additional guidance from the FDIC in December regarding the treatment of securitizations issued after March 31. The full effect of FAS 166 and 167 is still being determined, but the firm said they could result in further reductions in issuance volume in certain asset classes like credit cards where bank-sponsored transactions traditionally dominated the sector.
FAS 166 and 167 require banks to bring securitizations onto balance sheets and increase their capital reserves accordingly. The accountancy changes have been criticized as likely to make securitization too expensive for some financial institutions to continue the practice.
Write to Diana Golobay.
US house prices inched slightly higher in Q309 compared to Q209 in the Federal Housing Finance Agency’s (FHFA) seasonally adjusted purchase-only house price index (HPI).
The HPI uses sales price information from mortgages acquired by the government-sponsored enterprises (GSEs), which increased 0.2% quarter-over-quarter. Year-over-year, the purchase-only HPI decreased 3.8% in the third quarter.
The seasonally adjusted monthly index held steady in September, after declining a revised 0.5% from July to August.
“These data provide some evidence of short-term stabilization in housing prices, a likely result of the many ongoing efforts to stabilize markets,” said FHFA acting director Edward DeMarco. “Given the headwinds facing markets, including high unemployment rates and continued high levels of delinquency and foreclosures, the longer-term view remains uncertain.”
The national purchase-only HPI decreased 3.8% from Q308 to Q309, higher than the 2.8% decrease of other goods and services during the same period. Adjusted for inflation, house prices decreased 1%.
A second HPI that measures GSE-acquired purchase and refinance mortgages decreased 2.4% from Q209 to Q309 and 4.1% year-over-year.
Regionally, the greatest month-over-month price decrease was in the East South Central Census Division, which experienced a 2.1% decline, followed by decreases in the Middle Atlantic (1.2%), Mountain (0.7%) and West South Central (0.1%) divisions. The East North Central experienced the greatest increase at 1.1%, followed by increases in the South Atlantic (0.7%), New England (0.4%), West North Central (0.2%) and the Pacific (0.1%).
Year-over-year, the Mountain Division experienced the greatest decrease at 8.3%, followed by decreases in the Pacific (5.2%), Middle Atlantic (4.4%), East South Central (2.9%), South Atlantic (3.2%), New England (1.8%), East North Central (1.3%), West south Central (0.8%), and the West North Central (0.6%).
Write to Austin Kilgore.
